The Competition Commission’s new rules for the sale of payment protection insurance came into effect last week. This marked the end of a long, drawn-out struggle to change the way PPI is sold and cut the extremely high level of complaints about the product. Six years, one appeal and two CC orders later, is the PPI market finally on the road to shedding its reputation? The final order from the CC setting out the rules for the sale of PPI was finally published in March, after its initial proposals in 2009 were challenged by Barclays and Lloyds. The banks’ principal objection was the recommendation of a point-of-sale prohibition for PPI.
The CC rejected the appeal and invited consultation last October, delivering the final order on March 24. It comes amid the British Bankers Association’s judicial review into the FSA’s guidelines for PPI complaint handling, launched on January 25.
“The order seems like a good compromise,” says Plan Money director Peter Chadborn. “If PPI is presented professionally, then the buyer will want it whether they can get it right there or if they have to wait a couple of weeks. If PPI had been sold responsibly, it could have been very effective but because it was not, it required drastic measures.”
These measures include the contentious point-of-sale prohibition, meaning PPI cannot be sold until at least seven days after product purchase, provision of a personal PPI quote with the cost set out, provision of ratios on claims to anyone who request them, annual client PPI reviews and templates for these PPI quotes and reviews.
Bright Grey head of product development and technical support Ian Smart believes the CC has gone too far.
He says: “The inclusion of short-term income protection is a cause for concern. Short-term IP is costed like any other true IP policy and has multiple claims allowable. Why is the CC regarding short-term IP as something it is not?”
Smart predicts one aspect of the PPI final order will prove particularly difficult to implement for protection providers offering short-term IP. He says: “It is asking us to express premiums as an amount per £100, which they simply are not calculated as. It is going to be very difficult for us to follow.”
However, Chadborn believes the majority of the protection industry will not be affected by the order. “PPI never tarnished the protection market. Banks or mortgage brokers who sold PPI in volume are the ones whose reputation has suffered. Independent advisers did not sell much PPI, so the order will not affect them as much.”
Smart disagrees and says: “The protection industry was tarnished by PPI. We did not do ourselves any favours in the way products were constructed and sold.”
He welcomes key elements of the CC order. “The main parts are correct. True PPI contracts were being sold inappropriately and it had to be sorted out. But the CC has included other protection where there never were any selling problems. We seem to have gone from one extreme to the other.”
Where to go from here is the big question for Bright Grey and other providers of short-term IP. Smart believes going through the Association of British Insurers to see if there is any scope for the CC changing its mind is one option but he is open to other routes. “We need to consider if we are going to continue to offer this product. It would be a shame if we decided to pull out. I am not saying we will but it is up for consideration. If we decide to stay in the market, we will need to look at how we are going to respond in terms of process changes to meet the requirements. Another appeal to the CC is always possible.”
But the fact it has taken the commission so long to get to this position makes it unlikely.
The final order will go some way towards remedying the failings in the PPI industry but Chadborn believes the misselling was symptomatic of wider problems and needs a broader solution.
He says: “Bonus structures need to change. Bank branch staff are told to sell a certain amount of something each week, whether it is PPI or credit cards. We need to change the motivation for these staff and until that culture shift we are just going to see more of what we were seeing with PPI.”